European physical aluminium: Duty-paid softens due to LME drop

The European aluminium premium for duty-paid ingot was under pressure this week due to the recent subprime-crisis selloff on the London Metal Exchange. The duty portion of the duty-paid premium is calculated at 3% of the LME price, so if the LME price falls the premium is also subject to downside pressure. "Duty-paid coming off is purely a function of the LME price," said a European trader, adding that any softening was more as a result of this than it was due to a weakening of demand. The trader said he had not seen any softening in spot or further forward premiums. He sold HQ 2008 material at $140/mt, in-warehouse Rotterdam , and sold metal in Italy at $170 on an FCA basis. "In Rotterdam we have seen some business done at $125-135/mt, but not as low as $120/mt," he said, adding that on unpaid people were "ready and willing" to pay $55/mt for prompt, while Russian was lower at $45-50/mt. A consumer agreed that paid premiums were under pressure due to the drop in LME. "The LME has come down and I doubt it will go back up," the source said, adding that $120/mt for Q4 and 2008 was a reasonable number. The consumer reported booking metal at around $115/mt for the whole of next year. "For spot $125/mt is OK, but $135 is too high," the source said, adding that while the contango was one argument for holding metal, some people had to sell and book square. The consumer said Russian material was offered at $52/mt, but "it's definitely too high." A European buyer said he had been able to lock in metal at $48 and $128/mt for Good Western, unpaid and duty-paid respectively. "We could have got lower. My impression is that players have the flexible and inventory." He said while the contango made it possible for traders to roll metal there were still people who needed to move physical metal. "We could have got as low as $120 and $45 [for duty-paid and unpaid respectively]," he added. A UK-based trade source said aluminium trade was "plodding along." "People are holding out [for a large industry event in September] before committing to anything," he said, adding that the Russian sellers, may be holding out for higher premiums, before putting any serious offers into the market. A producer source said premiums were bound to have softened with such a large portion of the market on holiday. He noted however that unpaid metal would not sink much lower due to the contango. He said demand in Europe was fairly good, but for further forward he was bearish. "I am very doubtful for next year, the extrusion market has softened," he said. A second European trader said there was "nothing going on" and numbers, particularly Russian, were unchanged.